According to a notification from the RBI, the Center would repurchase securities valued at Rs 40,000 crore.

The central bank said that the securities up for repurchase are 6.18% GS 2024, 9.15% GS 2024, and 6.89% GS 2025, with maturities of November 4, November 14, and January 16.

"Within the ₹40,000 crore overall cap, there is no specified amount for the individual securities. The multiple pricing mechanism will be used to conduct the securities auction," it stated.

"The offers for the auction should be submitted in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system on May 09, 2024 (Thursday) between 10:30 a.m. and 11:30 a.m," the announcement stated.

On the same day, the auction's outcome will be revealed, and settlement will happen on May 10.

What does this repurchase entail?

By taking this action, the Center is deciding to pay down a portion of its outstanding debt ahead of the bonds' true maturity dates. Buybacks allow the financial sector to reclaim its liquidity. As of May 2, there is a Rs 78,481 crore shortfall in liquidity. Given their obvious vision into their short-term goals, the choice of assets indicates that the government is using this repurchase as a liquidity redistribution exercise.

This might also be interpreted as a yield management exercise. But the RBI has other alternatives that might be used for both direct and indirect messaging," Kumar added.

"There is a lack of cash, and government spending is not expected to increase until the next administration assumes office. Alok Singh, group head of treasury at CSB Bank, stated that this should also contribute in lowering rates on the shorter end.

The government's financial position will be further strengthened when the central bank pays the yearly dividend in May.